The simplest way to sense 3D space is to use what the note calls Time of Flight (ToF). An emitter transmits a signal (for example, in infrared) and times how long it takes to bounce off an object in front of the iPhone and return to a sensor. From a series of timed returns, the iPhone can build up a 3D image of what is in front of it.
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But there’s a second method which uses a more sophisticated approach ...
Known as Structured Light, a known pattern such as a grid is projected onto whatever is in front of the iPhone. This grid will be distorted by the 3D shape of the object it hits, and the iPhone can then analyze this deformation to calculate the shape of the object.
The two different methods are illustrated below, from the research note seen by Business Insider.
The Fast Company report in which the 3D system was first reported suggested facial recognition as a possible application, perhaps supplementing fingerprints as an additional unlock method. Using facial recognition as a primary method and an embedded fingerprint reader as a fallback could work much the way the 2016 MacBook Pro can be automatically be unlocked with an Apple Watch, with a Touch ID sensor as backup.
A later KGI note speculated that it could be used to create game avatars based on 3D selfies.
Apple CEO Tim Cook has repeatedly expressed interest in augmented reality, one UBS report suggesting that Apple has 1,000 engineers working on it, and that the tech may debut in the iPhone 8. Morgan Stanley has also chipped in, though with a more skeptical slant.
A previous Barclays note provided a second report of a red iPhone, perhaps as a late update to the iPhone 7.